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To: richardred who wrote (5)	4/10/2006 4:51:43 PM
From: Peter Dierks	Respond to of 340

MORTGAGES AND MORE: New Federal Reserve chairman delivers same result — another rate increase by David Kanis and Beth Burdick, COLUMNISTS published April 9, 2006 6:00 am When Ben Bernanke took over from Alan Greenspan as chairman of the Federal Reserve, he promised continuity, and continuity is exactly what he delivered. This makes the 15th consecutive increase that affects prime since the Feds began to raise the federal funds rate to banks in June 2004. Once again, this will result in another increase to all those who have credit card balances and home equity lines of credit. We have a saying in the mortgage business that borrower scenarios typically happen in threes, but we sure have had more than three people calling about what to do with their spiraling home equity lines of credit. The only way to get out of a HELOC is to refinance, but many are not prepared for the higher payments that would occur if they refinanced from an interest-only HELOC to an amortizing fixed rate second. Combine that with their current first mortgage payment and it may be enough to put some into the “poor house.” Recommendation We have a refinance rule that typically when you consolidate a first position lien with a second, the resulting combined payments usually are lower. This was not the case when interest-only prime was at 4 percent, but at the current 7.75 percent we do believe it will apply. All you can do is run the numbers because each borrower’s situation is unique. Those of you reading this with a first position lien ARM (adjustable rate mortgage) with a term about to expire, take heed as well. Following is a real scenario and an example of just what can be done in the sane and savvy world of mortgage lending. A typical question “I have a first mortgage with a balance of $260,000 at a rate of 5.875 percent and a second mortgage with a balance of $65,000. My problem is the rate on the second. It’s at 9.75 percent and with the next Fed hike it will be 10 percent. I really don’t want to refinance the first because of the low rate. If I do consider a consolidated refinance of both the first and the second, what about all those closing costs? The combined payments on both loans total $2,663 per month. Incidentally, my credit scores are in the 660 range due to the amount of consumer debt I now have. What would you recommend I do?” A not-so-typical answer We have a saying that a loan is a loan is a loan. Don’t get hung up on what the rate is on the first. You do have a “situation” that needs correcting. Our personal benchmark for safety on a HELOC is a balance of not more than $25,000 because most folks will opt for the interest-only payments required by the lender and never pay that balance down. We have always viewed a HELOC as a performance loan for the bank in that as prime goes up, you and your loan balance go up as well, guaranteeing the banks profitability. Prime may sound like a good deal, but in our current inverted market it’s not. Solution Our recommendation is for you to refinance both the first and the second into one consolidated loan with a new balance of $325,000. To avoid the closing costs, with a little clever finagling, we have written this loan at 6.375 percent to take advantage of the loan premium to “lender fund” your closing costs on this transaction. The only thing you will pay for “out of pocket” is an appraisal fee of $350. Yes, you are increasing the rate on your first mortgage, but your new loan payment will drop by $200 per month due to the fact that we have combined both loans and re-amortized the balance over 30 years. With the added savings, we suggest you chip away at your consumer debt. Bernanke’s first open market committee meeting as chairman ended with the reaffirmation that “some further policy firming may be needed.” This suggests that another rate hike is in the cards again at the next FOMC meeting on May 5. Be advised. citizen-times.com PS - It is amazing to me how much the media will take an article like you posted and write it with spin for partisan political purposes.